REG - Competition and Mkts - CMA update: Motorola/Airwave market investigation

Motorola SolutionsAnnouncement

14/10/2022 11:15

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RNS Number : 9359C  Competition and Markets Authority  14 October 2022

 
CMA issues proposals to address overcharging for emergency service radio
network

 * Home Office and emergency services appear to be locked in with monopoly
provide

 * Provisional assessment finds lack of competition is allowing Motorola to make
around £160 million excess profits a year

 * CMA proposes price control on Airwave Network to ensure lower cost for
taxpayer

 * Long-term future of the Airwave Network to be resolved by the Home Office

The CMA is proposing to restrict how much Motorola can charge for the
emergency services to use the Airwave Network.

The Airwave Network provides the essential separate mobile network that
enables the police, fire, ambulance and other emergency services to
communicate securely.

A market investigation by the Competition and Markets Authority (CMA), led by
an independent group of experts, has provisionally concluded that Motorola,
which operates the network, appears to be able to charge the Home Office
(which represents the emergency services) prices well above competitive
levels, resulting in higher costs which are ultimately paid by taxpayers. The
CMA has therefore outlined a set of proposed changes to limit the price that
Motorola can charge to a level that would apply in a well-functioning,
competitive market.

The Airwave Network was originally commissioned by the Home Office through an
open procurement exercise in 2000. The original contract, which was due to end
in late 2019 or early 2020, was to build and operate the Airwave Network and
the network was expected to be shut down and replaced by a new secure
communications solution using a commercial 4G mobile network, the Emergency
Services Network (ESN), when the contract ended.

However, because the new ESN network was not ready for switchover as planned,
and is not expected to be ready until 2026 and possibly later, the emergency
services continue to rely on the Airwave Network, which is a monopoly provider
of these essential communications services.

The CMA opened its investigation in October 2021 following concerns that the
market might not be working well, resulting in a more expensive service. One
concern was the Home Office's weak bargaining position when it came to the
network; another was Motorola's dual role in providing the current network and
in helping to deliver the ESN to replace it. The CMA also wanted to understand
if the significant profits Motorola could earn from the Airwave Network
affected its incentive to support (and not to delay) the delivery of ESN.

Martin Coleman, chair of the CMAÕs independent inquiry group, said:

"It is vital that the market for critical mobile radio network services used
by our emergency services works well and provides an excellent service at a
fair price.

"As far as the price is concerned, the market does not appear to be working
well at the moment. Our current view is that the Home Office and our emergency
services are locked in with a monopoly provider which can charge much more
than it could in a properly functioning market, while taxpayers foot the bill.
We are therefore proposing a direct intervention through a price control to
stop this and lay the basis for the Home Office to decide how it intends to
ensure these vital services are to be delivered in future."

In its provisional findings, published today, the CMA has found that the Home
Office is being charged more by Motorola to use the Airwave Network than
should be the case. The price set under the original agreement entered into in
2000 included the capital costs of building the network. By the time the
period covered by the original agreement ended, that cost should have been
recouped, and the price should have fallen substantially at that point - in
the same way that consumers can get cheaper mobile deals after they have paid
off their handset. This did not happen, and prices remained at substantially
the same level. But unlike consumers, the emergency services have no choice of
an alternative supplier.

The CMA's provisional estimate is that Motorola could make in the region of
£1.1bn excess profit from the operation of the network between January 2020
and December 2026. If the roll-out of the new ESN continues to be delayed,
Motorola could make around a further £160m excess profit each year after
2026.

Recent figures suggest while the Airwave Network accounts for around 7% of
Motorola's global revenues, it makes up around 21% of Motorola's global
pre-tax profits.

The CMA has also recommended that the Home Office puts in place a clear plan
as soon as possible to ensure that a new, upgraded network, or more
competitive arrangements, replace the existing set-up by the end of 2029.

The CMA is inviting comments on its provisional findings and expects to make a
final decision later in the year. For more information, visit the Mobile radio
network services case page
(https://www.gov.uk/cma-cases/mobile-radio-network-services) .

Notes to editors

1.   For media enquiries, contact the CMA press office on 020 3738 6460 or
press@cma.gov.uk.

2.   Motorola Solutions, Inc. (Motorola) is the ultimate parent company of
Airwave Solutions Limited, the entity through which it owns and operates the
Airwave Network. Motorola gained its dual role when it bought Airwave
Solutions in a merger deal in February 2016, 2 months after it had entered
into a contract with the Government to provide software for ESN. The merger
was cleared by the CMA, in part because of the general expectation that the
Airwave Network would be shut down by 2019.

3.   As a bespoke, integrated network fully dedicated to emergency services
communications covering the whole of Great Britain, the Airwave Network is
operated by a single supplier. No alternative network providing similar
services exists.

4.   Excess profits mean profits over and above what would be expected in a
well-functioning market.

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